During the recent webinar, Inventory Fitness – Governance, Targets, and Segmentation, we took audience questions and answered them.
Here are some issues that people in industry face and are interested in finding a solution to!
Question 1 of 14
Question:
What unique or special considerations regarding inventory management can or should be made in a business model considered “asset forward,” rather than the traditional Inventory Management views that are “market back” based?
Answer:
Well, one of the things is you can think about how much production you have and you can try to bring all of your locations up to the same level of days on hand. So as an example, if you had one location that was selling a thousand units a week and another that was selling three thousand units a week and you wanted thirty days on hand, you’d have three thousand in one location and you’d have nine thousand in the other location.
The only trick is if you have space or other considerations that you need to take into account. But in general, the idea is that you can get everybody to the same level of product flow as you allocate it out.
And ratios are a great way to look at that. One of the critical items is this: even in a push model, even in a make- or engineer-to-order model, these are generally driven by anticipated amounts to build. In other words, some kind of a demand plan, some kind of a forecast, some kind of an idea or assumptions about the future.
Otherwise, how would we calculate DOH? Because that’s a forward-looking calculation.
So this is especially true, though, when raw materials or intermediates or even things like plant size has to be determined ahead of time if the lead time is longer than the amount of time your customer is giving you to satisfy the order. So we can leverage it’s kind of similar in a way to standard models.
Obviously, we’re happy to talk about this more. We’ve built these types of models or worked with this type of a supply chain in the automotive OEM side and quite a handful of chemical and process engineering companies as well.
Remember, we’d be happy to chat with you about any of this in more detail.
And if you’re interested, check out our schedule for upcoming business process improvement courses that we offer throughout the year to help you achieve business excellence.